Portugal: Problem child despite reforms | Europe| News and current affairs from around the continent | DW | 18.07.2015
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Europe

Portugal: Problem child despite reforms

Problems from the past have been corrected, yet a mountain of debt remains - that's the way the Portuguese see it. The country is an uncertain prospect in the eurozone once more, as Jochen Faget reports from Lisbon.

He took out a loan, bought six tuk-tuk rickshaws and created 10 jobs: Joao Tubal is betting on tourism to help him through the crisis.

"There is practically no new building going on, but Lisbon is full of tourists," the young man soberly explains.

So he and his colleagues shuttle tourists around to all the sights of the Portuguese capitol in their three-wheelers - with environmentally friendly electric motors. The motors reflect Tubal's background and training as an environmental engineer.

"Business is going well," says the young entrepreneur.

Profound changes

Tourism is booming in Portugal, and more and more people are profiting from it. Low-cost airlines and cruise ships have brought 12 percent more tourists to the country in the last year. More increases are expected in 2015.

Portugal after the crisis is not Portugal before the next crisis, says Joao Duque. According to the economics professor, who teaches at the respected ISEG business school, the country has changed. He says that Portugal has modernized and reinvented itself. And though government debt remains high, Portugal has meanwhile repositioned itself on decidedly better economic footing.

Joao Duque

Duque says that Portugal has reinvented itself after the financial crisis

"In 2013 and 2014 we once again exported more than we imported. That is the first time in a long time."

The only other time that has happened in the last 100 years was during World War II, when Portugal delivered tungsten to Nazi Germany for weapons production, says Duque with a wry smile.

But post-crisis Portugal is not only exporting more, it has also cut off its ancient bureaucratic braids and built up an efficient tax collection authority. That's why the sound of cash tinkling into state coffers is sweeter than ever before.

One of the men who has contributed to the Portuguese success story is Henrique Neto. Now 79 years old, the businessman will also stand as an independent candidate in next year's presidential election.

He has built a small empire of extremely modern injection mold factories, which export around the world and also produce goods in China. The sector in which he does business is responsible for the country's export growth alongside the shoe and textile industries, and the Volkswagen factory south of Lisbon.

Keep pushing exports

"We've done pretty well," says Neto. "But we have to export a lot more."

The conditions for improving export numbers also aren't bad, he says. On one hand, the weaker euro helps; on the other, Portugal now has a well-educated workforce and good managers. One can add to that the potential for Portugal to profit from its geographic position in light of the pending TTIP free-trade agreement with the US.

Henrique Neto

Neto believes that more foreign aid will be necessary to push economic growth in the country

But Neto says that in order to really get business booming in Portugal, European aid and foreign investment will be necessary. Investors could be further attracted by low income and payroll tax costs. And, he notes, Portugal's outstanding infrastructure, partially financed with help from the European Union, could also help.

Economics professor Duque emphasizes that Portugal has proven that it's capable of change. He cites Portugal's shoe industry, which once produced cheap, low-quality goods, and now competes with exclusive fashion labels from around the world.

Similar expertise has been built up in other sectors, with products ranging from textiles to wine. So the country is on the right path. Many other changes that have already been implemented will begin to show positive results, but only in several years time, says Duque.

Horrific government debt

Meanwhile, Portugal is still struggling with a crushing debt burden of almost 130 percent of GDP. Businessman and presidential candidate Neto says that the country's former leaders are to blame for the problem. Not only did they make it easy for private citizens to amass debt, but with the drop in interest rates that followed Portugal's accession to the eurozone, the government also lived far beyond its means.

Tourism ad in Portugal

With or without economic challenges, tourism in Portugal has been booming

Economist Duque notes that the EU has eased some of the pain through loan restructuring, but he says he has no idea how Portugal will ever be able to pay off its debt in the foreseeable future.

Tuk-tuk entrepreneur Joao Tubal thinks about that too. "Sure, there were excesses in the past, and one certainly has to pay off one's debts," he says. But when that is no longer possible, he says he thinks rich EU countries should show some solidarity and help out.

Model student with problems

Despite having "done its homework," Portugal remains a problem child in the EU because of its enormous mountain of debt.

"There is no doubt that interest rates in Portugal will go up - for instance, if the euro gets into serious trouble because of Greece," says Neto. When that happens, Europe's solidarity may be tested once more.

Duque says that Portugal will almost certainly be able to count on help, though. "Since Mr. Schäuble has so often publicly praised us as a model student, he'll no doubt do all that he can to avert a Portuguese disaster."

For Schäuble, the prerequisite would likely be that Portugal has to abide by the rules in the future, and keep saving.

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